Cigna (CI) agrees to acquire American Financial Group's (AFG) supplemental health insurance group for ~$295M in cash. CI says the deal provides significant opportunities for growth; AFG expects an after-tax gain of $95M-$105M from the sale, which is expected to close in H2 2012.

Cigna (CI-1.6%) plans to sell 15M shares to help fund its pending $3.8B deal to acquire Medicare carrier HealthSpring (HS). Cigna earlier this month sold $2.1B of debt, and the equity issuance at Tuesday’s closing price would bring in ~$750M.

More on Cigna (CI+2.9%) / HealthSpring (HS+34%) deal: Cigna will pay about $3.8B to buy HealthSpring in an acquisition that boosts Cigna's Medicare Advantage ops. The $55/share price represents a 37% premium over HS's Friday close of $40.16. (PR .pdf)

Shares of Aetna (AET+3.7%) and Cigna (CI+4.6%) jump amid speculation that the two health insurers should merge. Barclays analyst Josh Raskin describes a setup where Aetna could pay as much as $16.1B for Cigna.